While DSGE models are useful research tools for developing analytical insights, the highly simplified assumptions needed to obtain tractable general equilibrium solutions often undermine their usefulness. As we have seen, the data violate key assumptions made in these models, and the match to institutional realities, at both micro and macro levels, is often very poor.

I feel like I've been saying this for quite some time...good to see I'm not alone...

11. Tyler Cowen on Japan's cursed financial equilibrium. Someday it will end in a Japanese default. That day is likely to come within the decade. I may be the only person on the planet who thinks this will be a good day for the Japanese economy...

18. Paul Krugman discusses how slowly "internal devaluation" takes effect. This is something I've argued with JW Mason about in the past. I still maintain that internal devaluation is better than nothing, especially when other countries peg their exchange rates to yours. But I of course agree that other countries not pegging their exchange rates to yours is the best solution, if you can make it happen.

38 comments:

7. Yglesias seems to have this long standing hatred of all things Mankiw.

"Now Mankiw's overall argument is that because of population migration we ought to favor decentralization, because decentralization will make it impossible for the government to raise the living standards of the least-fortune people. That strikes me as a morally perverse perspective, so I'm not really sure how a clearer understanding of land use issues would change his thinking."

REALLY? Does he actually think Mankiw's point is that federalism will help fuck the poor over the most? People take M.Y. seriously, but if he actually wants to become a credible intellectual he's going to have to try a bit harder than assuming Mankiw just hates poor people. (Perhaps not, see Krugman)

no, you are ignoring the social aspect of it: endless unemployment will eventually be rejected at the voting booth, along with the people who promote it. Good things like labor market reforms will be rejected because people do not tolerate deflation and internal devaluation for the length of time it takes to happen. On the really bad end you can end up with facsism like Hungary is moving towards now. When high unemployment is allowed to rot the fabric of society, social unrest builds. democracies are peaceful when they are prosperous. take that away...

I'm still not sold that high skill immigration is the panacea everyone makes it out to be. In many cutting edge research fields, demand is fundamentally limited by things like government funding. Increasing the number of researchers in those fields just results in lower wages, longer and more numerous postdocs, and more people leaving the field. You can see what happened in fields like mathematics and physics after the soviet union fell and there was a dramatic increase in skilled immigration from those fields. We didn't create more math and physics- more mathematicians and physicists stopped publishing, and left the field.

High skill immigration will do nothing but proportionally increase the number of frustrated high skill people working outside their area of expertise unless its coupled with a corresponding increase in demand. Supply doesn't seem to create its own demand. In a world where we cared enough about innovation that highly skilled labor were scarce, high skilled immigration makes a ton of sense- but that doesn't appear to be the world we live in. First, create demand, then worry about using immigration to match the supply.

For government-funded research, you're partly right. Increasing demand for researchers (by spending more money on research) is of course the most important thing. I should note, though, that allowing in more foreign researchers will depress wages in the government-funded sector, making it somewhat cheaper to do research - more research bang for each government buck. However, I predict this effect will be small.

Now, on to the more important point - the private sector. There are four ways that high-skilled immigrants create more jobs for high-skilled native-born Americans than they destroy.

1. Demand. Most of the dollars that go to the salary of a high-skilled immigrant are re-spent on American-produced goods and services. This increase in demand creates jobs. Since high-skilled immigrants, like other high-skilled people, generally spend a higher-than-average percent of their income on products produced by other high-skilled Americans (tech, finance), this increases demand for high-skilled labor in general.

3. Agglomeration effects. Companies want to locate close to consumers. Consumers want to live close to where jobs are. These effects reinforce each other, so that places with a lot of high-income productive people tend to become highly urbanized. Urbanization increases productivity.

4. Clustering effects. Similar to agglomeration effects, but at the industry level. Companies want to be close to suppliers and customers, and also to competitors (to poach their talent and ideas). More smart people means more and bigger high-skilled clusters like Silicon Valley (which is largely immigrant-driven, even in the 70s when it was driven by internal migration from other parts of America); this means more jobs and better wages for high-skilled native-born Americans.

Now. As a thought example, imagine if a genetically engineered virus killed half of the people in America with an IQ over 140, while not affecting anyone else. Would the remaining smart native-born people find it easier or harder to find a job? In the short run, maybe easier. But after a few years, the effect would reverse (barring new immigration), as tech companies etc. collapsed and the economy in general shrank.

I'm also not sold on the idea that high-skill immigration will solve much. At least not in my field. As a 45 year old web developer, I'm frequently told that I'm either a "bad cultural fit" (read: too old to hang with the brogrammers) or "at risk for boredom here" (read: too experienced for our financials).

Norman Matloff recently pointed out that, in the software development field, "Government data show that H-1B software engineers tend to be much younger than their American counterparts. Basically, when the employers run out of young Americans to hire, they turn to the young H-1Bs, bypassing the older Americans."

So, no, I'm not hot for immigrants taking my job. And the data shows that they are.

2. The expectation that people's wages should always rise with age doesn't always make sense in all industries and all time periods. Sorry. Sometimes older workers are more productive than younger ones, because of their experience, connections, etc. Sometimes not (e.g. athletes). I want to see people's wages go up over the course of their lifetimes, because this provides them with dignity, a sense of accomplishment, and a sense of forward progress. But it does not always make economic sense, which makes me sad but is just the way it is.

A monumental, integral -- and tragic -- example of libertarian bias is how in economics the concern, the goal, is almost always Pareto optimality rather than total societal utils optimality.

A common reason given is that it’s hard to measure total societal utils. Well, it’s hard to measure lots of things, so is it then optimal to completely ignore them, and just go 100% with random luck for our strategy in optimizing things that are of great importance to us? We can’t improve on that? When you choose a city and a home, do you say it’s hard to estimate the expected utility of a home, so I’ll just throw a dart at a map of the world and decide that way? I’ll put no thought into it whatsoever, and completely ignore the great deal of important information that I do have, and can get? Of course not.

Plus, you think it's hard to estimate the utils people get from goods, but it's not hard to rank their preferences for any and all bundles? You're not ok with a function that estimates their utils, but you are ok with one that ranks any and all bundles of goods? You're ok with saying a function like lnX does this, THAT'S Ok, but a util function isn’t?

Clearly it’s hard to get a more pro-libertarian and anti-utilitarian bias than saying I’ll almost always make Pareto optimality a central focus and almost always completely ignore total societal utils; you're virtually coming right out and saying I'll almost always be a libertarian in my analyses and almost never a utilitarian – or anything in between.

"If you still are afraid that high-skilled immigrants will TAKE YER JERBS, do a big and immediate rethink! High-skilled immigrants will CREATE YER JERB."

Because anyone who questions the unadulterated goodness of immigration is an ignorant yahoo who can't spell.

Some of us can still read and calculate, though.

In the Atlantic article cited there is one statistic given about high-skilled immigrants creating jobs: "Half of all Silicon Valley start ups have a co-founder no more than one generation separated from an immigrant." I'm not quite sure if that means immigrant plus at least one immigrant parent or immigrant plus at least one immigrant parent or at least one immigrant grandparent (hey, I'm counted.) but it doesn't matter.

In 1990 (www.ppic.org/content/pubs/rb/rb_699asrb.pdf) immigrants accounted for 32 percent of that region’s scientific and engineering workforce. Startups average between two and four co-founders. Purely by chance, what percentage would you expect to have at least one _immigrant_ co-founder, not including "one generation separated"? Just two co-founders only?

53%

What was that about "High-skilled immigrants start companies at MUCH higher rates than native-born Americans"?

"Immigrants were more than twice as likely tostart businesses each month than were thenative-born in 2010. The immigrant rate ofentrepreneurial activity increased sharply, from0.51 percent in 2009 to 0.62 percent in 2010,further widening the gap between immigrantand native-born rates. The native-born rate is0.28 percent."

1. I thought it was the Atlantic article that established this proposition? Now it seems it is another article entirely.

2. From the Kaufman report: "While there are, withouta doubt, divergent patterns in business creationbelow the surface here, with many high-potentialbusinesses starting and many people being forcedinto entrepreneurship because they lack other jobopportunities, unfortunately, it is impossible tocleanly disaggregate those trends." So, by their own statement, it can not be said if these business are creating jobs for anyone else (YER) or not.3. Entrepreneurial activity was not correlated with education. Indeed, entrepreneurial activity of college educated was less than the average, (Table 5, page 14) so whatever is being measured by the Kaufman report, it is not the same as high tech start ups.4. Nowhere in the study do high-skilled immigrants appear as a group to be studied or compared to high-skilled native born.5. The report does not contain data on jobs other than possibly for the business owner himself.

I thought it was the Atlantic article that established this proposition? Now it seems it is another article entirely.

OH MY GOD, more than one article provides evidence to support a proposition?? :-O

So, by their own statement, it can not be said if these business are creating jobs for anyone else (YER) or not.

But the fact of entrepreneurship means that immigrants are more likely to be job-creators than native-born Americans. Add that the the other factors (demand, agglomeration, and clustering) and the case is very strong.

So unless you're arguing that entrepreneurship, on average, is job-destroying...

"I thought it was the Atlantic article that established this proposition? Now it seems it is another article entirely.

OH MY GOD, more than one article provides evidence to support a proposition?? :-O"

Except that I showed that the Atlantic article did NOT provide evidence for the assertion. Actually, it is worse than I originally said: I used 1990 figures for immigrant employment (32%). The current percentage is 62%. Which means by chance 85% should have at least one foreign born co-founder. By the terms of the Atlantic article it looks like they are less entrepreneurial than native born.

"But the fact of entrepreneurship means that immigrants are more likely to be job-creators than native-born Americans."

That assumes that what is being measured in the Kaufman report and called there entrepreneurial is in fact job creation. Let's look at one table, table 6 Entrepreneurial Activity by Industry. From 2006 to 2010 the level steadily rose from 1.06% to 1.60%. In the same period jobs in construction went from over 7.5 million to 5.5 million (http://data.bls.gov/timeseries/CES2000000001?data_tool=XGtable). Whatever Kaufman is measuring it is not the same as job creation.

"Add that the the other factors (demand, agglomeration, and clustering) and the case is very strong."Assumption of facts not in evidence. If the evidence for these other factors is as weak as the cited ones for job creation you're in big trouble.

"So unless you're arguing that entrepreneurship, on average, is job-destroying..."

The proposition was that "High-skilled immigrants start companies at MUCH higher rates than native-born Americans. Furthermore, these companies tend to be tech companies.This generates additional demand for high-skilled native-born workers."None of those propositions have had evidence presented for them. The Atlantic article plus employment data seems to imply that high-skilled immigrants are less likely than their native-born counterparts to found start ups. The Kaufman report may not measure job creation and in any case does not compare high-skilled immigrant versus high skilled native born. No study cited shows that the companies started by high-skilled immigrants tend to be tech companies. No evidence was presented that jobs created was greater than jobs displaced.

Except that I showed that the Atlantic article did NOT provide evidence for the assertion. Actually, it is worse than I originally said: I used 1990 figures for immigrant employment (32%). The current percentage is 62%. Which means by chance 85% should have at least one foreign born co-founder. By the terms of the Atlantic article it looks like they are less entrepreneurial than native born.

You know, this is terrible logic, since it assumes immigrants are randomly distributed throughout the nation...

That assumes that what is being measured in the Kaufman report and called there entrepreneurial is in fact job creation.

Look, I said ""High-skilled immigrants start companies at MUCH higher rates than native-born Americans", and then I presented evidence for that proposition. In the parlance of my generation, "duh"...

From 2006 to 2010 the level steadily rose from 1.06% to 1.60%. In the same period jobs in construction went from over 7.5 million to 5.5 million (http://data.bls.gov/timeseries/CES2000000001?data_tool=XGtable). Whatever Kaufman is measuring it is not the same as job creation.

"Except that I showed that the Atlantic article did NOT provide evidence for the assertion. Actually, it is worse than I originally said: I used 1990 figures for immigrant employment (32%). The current percentage is 62%. Which means by chance 85% should have at least one foreign born co-founder. By the terms of the Atlantic article it looks like they are less entrepreneurial than native born."

You know, this is terrible logic, since it assumes immigrants are randomly distributed throughout the nation...

Except that in both cases I used employment percentages for the Silicon Valley area. How does this assume immigrants are randomly distributed throughout the nation?

Look, I said ""High-skilled immigrants start companies at MUCH higher rates than native-born Americans", and then I presented evidence for that proposition. In the parlance of my generation, "duh"...

The statement by you I was responding to was But the fact of entrepreneurship means that immigrants are more likely to be job-creators than native-born Americans.

The Kaufman report says explicitly it doesn't know if it is measuring job creation, its indexes don't correlate with job creation and it never compares high-skilled immigrants to high-skilled native born. On the last point, what was that about assuming something was randomly distributed through a group being terrible logic?

You know, I would think explicit reports that high-tech immigration was a net job producer even for high-tech native born would be easy to find and widely publicized. Companies seeking more H-1B visas would love to show them to politicians and the public. They have the money to fund it to. Yet I don't see them. Well, not evidence of absence and all that.

Except that in both cases I used employment percentages for the Silicon Valley area. How does this assume immigrants are randomly distributed throughout the nation?

Your argument appears to be: "Look, the high-skilled immigrants in Silicon Valley are no more entrepreneurial than native-born people in Silicon Valley; hence, high-skilled immigrants are not more entrepreneurial than native-born Americans, they're just lucky enough to live in Silicon Valley, where lots of people start companies."

Except this is not the case, because those immigrants did not appear in Silicon Valley by random chance or luck. They went there because either 1) they were hired by employers there, or 2) they deliberately went there in order to start a business!

The Kaufman report says explicitly it doesn't know if it is measuring job creation, its indexes don't correlate with job creation and it never compares high-skilled immigrants to high-skilled native born.

Two points here.

1. See this:http://ideas.repec.org/a/kap/sbusec/v30y2008i1p49-58.html

2. The thing about high-skilled native-born people is, we cannot easily make more of them.

OK, Larry, let's ask this question: Canada lets in a lot of high-skilled immigrants. Do high-skilled native-born Canadians have trouble finding jobs? I realize that this question is compromised because Canadians can go work in America, but it's still worth it to look at another country that has made different choices than we have.

You seem to think that the burden of proof is on me here - that we should assume that immigration is bad for native-born employees unless proven otherwise.

But I argue that the burden of proof is on you. Here's why. Basic economic intuition says that a positive shock to a factor of production - i.e., an increase in the amount of some productive stuff - should boost growth. And Okun's Law, which has excellent empirical support, says that growth brings employment. Human capital is a factor of production; therefore, we should expect high-skilled immigration to boost growth, and therefore employment, unless proven otherwise.

More precisely, I think that immigration in a specific field that is not saturated is bad for native-born competitors in that field unless some evidence shows otherwise.

People are not interchangeable. Nor are they perfectly spherical.

Indeed the H1-B visa program assumes the above is true. Companies must show that there is no qualified applicants available. This is widely abused by overly specific job requirements. For example, you elsewhere mention that you are teaching your self how to teach finance. In an H-1B environment, SUNY would say "We need someone with experience teaching exactly these finance courses. Don't even bother to apply Noah Smith." and bring someone in from outside.

As for Okun's law and all that, allow me to quote the oracle of the occasionally correct:One implication of Okun's law is that an increase in labor productivity or an increase in the size of the labor force can mean that real net output grows without net unemployment rates falling

He who lost a job may not get it back. The burden seems to be that the immigration mentioned (high-skilled) has sufficient stimulative effects to increase high-skilled employment so that every negative is removed. Otherwise someone suffers, even if the society as a whole may benefit.

Except that in both cases I used employment percentages for the Silicon Valley area. How does this assume immigrants are randomly distributed throughout the nation?

Your argument appears to be: "Look, the high-skilled immigrants in Silicon Valley are no more entrepreneurial than native-born people in Silicon Valley; hence, high-skilled immigrants are not more entrepreneurial than native-born Americans, they're just lucky enough to live in Silicon Valley, where lots of people start companies."

The Atlantic article presented a statistic ("Half of all Silicon Valley start ups have a co-founder no more than one generation separated from an immigrant.") which was supposed to argue for the importance of immigrants in job creation. I pointed out that given the proportion of immigrants this is not surprising, indeed evidence that immigrants in Silicon Valley are less likely than their native born peers to be co-founders.

Except this is not the case, because those immigrants did not appear in Silicon Valley by random chance or luck. They went there because either 1) they were hired by employers there,

So now getting a job where a lot of jobs are created makes you a job creator? Is this only true for immigrants or are we in the Lake Wobegon of job creators?

or 2) they deliberately went there in order to start a business!Which strangely doesn't show up in the statistics.

1. See this:http://ideas.repec.org/a/kap/sbusec/v30y2008i1p49-58.htmlFrom what I can read of it, it's about Portugal, doesn't mention immigration, doesn't concern itself with high skilled employment and concludes that there is a positive result from firm creation but it is significantly delayed. However, it still hasn't been established that high skilled immigrants in fact create firms at a greater rate than their displaced peers. Until that is done the article appears irrelevant.

2. The thing about high-skilled native-born people is, we cannot easily make more of them.

This assumes we have an inadequate supply of high-skilled people or increasing the supply is an unalloyed good, which is precisely the question.

OK, Larry, let's ask this question: Canada lets in a lot of high-skilled immigrants. Do high-skilled native-born Canadians have trouble finding jobs? I realize that this question is compromised because Canadians can go work in America, but it's still worth it to look at another country that has made different choices than we have.

How is this a contrast? The US lets in a lot of high-skilled immigrants, so does Canada.Picking a year at random (the first figures I found were for 2001) Canada had immigration of .86% and the US was .52% of population. For the US 13% of those who became legal permanent residents were on the basis of employment skill for .07% of population. H-1B visas bumped that up to .13% of population. For Canada skilled worker principal applicants group comprised 19.8% of all immigration in 2005. If that proportion was the same as 2001 then skilled worker immigration was .17% of population, not a huge difference.

One implication of Okun's law is that an increase in labor productivity or an increase in the size of the labor force can mean that real net output grows without net unemployment rates falling

But my point was that high-skilled immigration is an increase in the quality of the labor force, not just its size.Which to me implies increased productivity and increased size of the labor force.

I also don't understand what you mean by a market that is "not saturated"...

If you're not part of the solution you're part of the precipitate.'Not saturated" means fewer jobs than people, employment at or below the NAIRU for that industry, someone getting a job means someone else didn't.

From the article:At a party recently a startup founder told me “If you could find me five great engineers in the next 90 days I’d pay you $400,000.”Note he offered the 400K to a recruiter, not an engineer. Recruiter sounds like a better gig. a self-taught programmer can emerge from relative obscurity and land a mid-nine figure paydayBut the median programmer makes a 85K salary not a multi million dollar payday.

The article makes a lot of comparisons between 1984 and 2009 graduation without ever noting that there are half again as many college graduates in 2009 as 1984.

I imagine these are the quotes you are interested in:In 2009 the U.S. graduated 37,994 students with bachelor’s degrees in computer and information science. This is not bad, but we graduated more students with computer science degrees 25 years ago!

According to the Bureau of Labor Statistics (PDF download) computer and mathematical occupations are expected to add 785,700 new jobs from 2008 to 2018. It doesn’t take a math major to see that we’re graduating students at a far lower rate than required to meet demand.It seems only people with computer science degrees can work in computer and mathematical occupations. None of the say 68,793 non-computer related engineering graduates in 2009 could possibly work there. It's as silly as thinking a physics major could teach finance.

People have been playing this tune about a short fall in technical people it seems like forever. Yet the median pay for a programmer in 2010 is 5% lower (adjusted for inflation) than it was in 1990. Mid career (45) can't find work. Does that sound like a market desperate for workers to you!

If there’s both security on the downside (computer science majors experience rock-bottom unemployment rates)Elf Sternberg above commented on the hierarchy of tech hiring. New CS majors have about half the unemployment rate of CS in general.

I just noticed that the ratio of skilled immigration to total immigration is higher for the US than Canada

Really? Give me data!US: Population: 308,745,538. (http://2010.census.gov/news/releases/operations/cb10-cn93.html) legal permanent residents on the basis of employment skill =.07% of population. (http://en.wikipedia.org/wiki/Immigration_to_the_United_States) H1-B visas = .04%* of population (http://en.wikipedia.org/wiki/H-1B_visa) Total skilled immigration = .11% of population. Total immigration = .52% of population .11/.52= .21*this is changed from before because I found a clear source for to H1-B visas.For Canada skilled worker principal applicants group comprised 19.8% of all immigration in 2005. (http://en.wikipedia.org/wiki/Immigration_to_Canada#Immigration_categories)That's assuming H1-B visas are counted in total immigration, If not then the ratio is.11/(.52+.04)= 19.6, about the same as Canada.(Also: all your other points are wrong.)Ah, proof by assertion.

"I also think, incidentally, that maybe they should reconsider the perfection and rightness of their ideology... "

Oh, c'mon now; no religion ever wants to be the first one to do that. What we'll see first is a schism, where the Galtians decide that the Roarkians are virulent heretics deserving of the harshest punishment ("She's a witch!") and they both agree that Ron Paul is an apostate if not a vile blasphemer. Soon the fun will start and there will be sects, sub-sects, deviant sects, consensual sects, chemically-enhanced sects, incense-free sects, creeds, screeds, mockeries, Thackerays, Inquisitions, Crusades, Reformations, Restorations, Abominations and Free Love. Only then will the One True and Holy Church of Rand be fully established as the single pure essence of Libertarianism, with the ruling that the other 7,843 "Libertarian" churches are merely cults to be stamped out with an iron boot. What this has to do with economics I have no idea; I swear there was a vaguely economic idea somewhere in there at first, but it seems to have been somehow misplaced.

Noah, you're right about productivity, BTW. Forgot about the Alexander Field research. But what I meant to say was that, given your usage of the phrase "money quote," you may enjoy this ancient William Safire column from "On Language" exploring its etymology. I use the phrase a lot too when I give out my weekly links. http://www.nytimes.com/2005/03/13/magazine/13ONLANGUAGE.html

Computer ScienceI am very thankful your commenting and positng. It is related to computer.Computer is an electronics device that can accept data and instructions as input,process the data to given instructions and shows results as output.